Bitcoin ETF: Everything you need to know about the crypto world's big move
2024 is one of the most anticipated years within the crypto world. In addition to the upcoming Bitcoin halving in April 2024, Bitcoin ETFs have to start being approved at the beginning of the year.
Just in January 2024, BlackRock, Grayscale and others want to offer Bitcoin ETFs so investors can tap into the digital asset without going through a traditional cryptocurrency buying and selling process, being a great advantage for everyone.
But what does this mean? **Why Bitcoin ETFs are the biggest step towards regulation? Here's everything you need to know.
First of all, what are Bitcoin ETFs?
Exchange Traded Funds (ETFs) are a crucial component of the financial world, with investments amounting to several trillion dollars. These funds are traded on stock exchanges just like stocks.
However, unlike stocks, which represent a stake in a specific company, ETFs represent ownership of a pool of assets. There are ETFs that track indexes such as the S&P 500, as well as bonds, commodities, and even gold.
Buying an ETF is as easy as buying stocks, which has led many experts to forecast a significant increase in Bitcoin ETF investments.
A Bitcoin (BTC) Exchange Traded Fund (ETF) gives investors the opportunity to get involved in the most important cryptocurrency using conventional brokerage accounts and stock exchanges, without the need to directly acquire or trade the digital asset on a platform or cryptocurrency exchange.
As of January 2024, the U.S. Securities and Exchange Commission is reviewing more than a dozen proposals for potential listing, submitted by potential issuers such as BlackRock and Fidelity, as well as Grayscale, which is seeking to transform its Grayscale Bitcoin Trust into an ETF. There is a widespread expectation that regulators will grant approval in the near future.
A bit of the history of Bitcoin ETFs - how difficult has the road been?
In 2013, Cameron and Tyler Winklevoss floated the idea of creating a Bitcoin ETF, but their proposal was rejected several times by the SEC. Regulators argued that the Bitcoin market was too unstable, lacked proper oversight and was susceptible to manipulation.
However, in 2017, the United States introduced Bitcoin futures contracts, aimed primarily at professional investors, as opposed to ETFs that are more popular with retail traders. This innovation was a step forward that ultimately led the SEC to approve Bitcoin futures ETFs in 2021.
For several years, Grayscale has operated the Grayscale Bitcoin Trust (GBTC), which manages billions of dollars in BTC. Similar to a Bitcoin ETF, acquiring a share of GBTC is equivalent to owning an economic interest in Bitcoin. However, there are disadvantages. It is not as accessible as an ETF and, because of how the trust is structured, it is possible to issue new GBTC shares but not cancel existing ones.
Advantages and disadvantages of Bitcoin ETFs
As we have seen, Bitcoin ETFs can bring some advantages to the market, such as the following:
✅ With an ETF, the need to personally manage the secure storage of cryptocurrencies is eliminated.
✅ ETFs are subject to stricter regulation compared to Bitcoin, thus offering greater peace of mind to certain investors.
✅ Traditional brokers may be more reliable for more cautious investors or those who do not want to introduce themselves to more risk.
✅ In addition, conventional financial products have more defined and clearer tax guidelines compared to digital assets.
But there are also some disadvantages to consider:
❌ Cryptocurrency markets operate continuously, 24/7, unlike ETFs, which can only be purchased during the trading hours of stock exchanges, closing on weekends and weekday nights.
❌ While owning Bitcoin directly involves no costs, ETFs incur management fees.
❌ In addition, when investing in ETFs, one is required to rely on external custodians to manage these assets.
Bitcoin ETFs are the next step towards regulation of the currency. 2024 will be important due to the fact that many of them could end up being accepted and regulated, taking a step towards the main goal of cryptocurrencies.
By the way, here you can learn about the full regulatory landscape of Bitcoin ETFs, along with their real-time response.